Wall Street got some encouragement to keep pushing stocks higher after a slowdown in inflation bolstered speculation the Federal Reserve will pause its tightening campaign on Wednesday.
(Bloomberg) — Wall Street got some encouragement to keep pushing stocks higher after a slowdown in inflation bolstered speculation the Federal Reserve will pause its tightening campaign on Wednesday.
That’s not to say investors are betting the Fed is done with its interest-rate hikes just yet. While swap traders lowered their wagers on a June increase to about 10%, they still see a July move as likelier than not.
Tuesday’s inflation data brought something for both the doves and the hawks. The consumer price index and the core CPI — which excludes food and energy — decelerated on an annual basis. But a key gauge of prices closely watched by the Fed continued to rise at a concerning pace.
“Market expectations are too settled on the pause at this point and the Fed will not want to surprise investors,” said Jim Smigiel, chief investment officer at SEI. “However, with core still running with a 5-handle, the next move from the Fed is another hike in July and perhaps one more after that (which is not priced in at this point).”
The S&P 500 rose for a fourth consecutive day, on pace for its longest winning run since early April. Oracle Corp. jumped toward a record after saying the company’s cloud-computing business will continue its rapid growth in the coming fiscal year. Treasury two-year yields, which are more sensitive to imminent Fed moves, were little changed. The dollar halted a two-day advance.
More Comments:
- Seema Shah, chief global strategist at Principal Asset Management:
“It would likely have taken a meaningful upside inflation surprise to convince the Fed to hike in June. With inflation coming broadly in line with expectations, the pressure is off.”
- Mathieu Racheter, head of equity strategy at Julius Baer:
“The print takes off some nervousness in the market regarding the speed of the disinflation process. Should be positive for risk-assets at the margin.”
- James Athey, investment director at Abrdn:
“On balance, I don’t see today’s data as changing anything. The Fed is comfortable pausing the hiking cycle in June, provided there is a strong statement of their intention to raise rates again should it be required.”
- Alexandra Wilson-Elizondo, deputy CIO of multi asset solutions at Goldman Sachs Asset Management:
“Today’s CPI number was a relief for the market, as the data met expectations, confirmed the disinflationary trend, and reaffirmed current market pricing of a Fed pause tomorrow. However, the rate of disinflation remains incompatible with the Fed’s 2% target. We expect the Fed to deliver a hawkish pause tomorrow.”
- Joachim Klement, head of strategy, accounting and sustainability at Liberum Capital:
“This is good news, although spoiled by the stubbornly high core inflation number. Overall, this is a CPI print that allows the Fed to remain on hold tomorrow evening and should not be a problem for the US economy.”
- Hussain Mehdi, macro and investment strategist at HSBC Global Asset Management:
“This provides the Fed with some breathing space as it assesses the impact of previous policy tightening on the economy – so the FOMC should be fairly comfortable with a pause this month. Chairman Powell may sound hawkish at tomorrow’s press conference.”
- Richard Flynn, managing director of Charles Schwab UK:
“Today’s fall in the rate of inflation is likely to be welcomed by investors, but it remains stubbornly above the Fed’s 2% target. The good news is that the ‘stickiness’ in inflation is now confined to a smaller number of categories compared to earlier in the year.”
- Jeffrey Roach, chief economist at LPL Financial:
“The encouraging trend in consumer prices will provide the Fed some leeway to keep rates unchanged this month and if the trend continues, the Fed will not likely hike for the rest of the year.”
Bank of America Corp.’s latest global survey of fund managers showed investors are “exclusively long” tech stocks amid the buzz around artificial intelligence. Long Big Tech was the most-crowded trade, according to 55% of the participants, the strongest conviction since 2020.
Still, fund managers remain broadly underweight on stocks as sentiment — measured by cash levels, economic growth expectations and asset allocation — remains “stubbornly low,” BofA strategist Michael Hartnett wrote in a note. Investors cut equity allocation to a five-month low.
Key events this week:
- Eurozone industrial production, Wednesday
- US PPI, Wednesday
- Federal Reserve rate decision, updated economic forecasts, Jerome Powell’s press conference, Wednesday
- IEA oil market report, Wednesday
- China property prices, retail sales, industrial production, Thursday
- European Central Bank President Christine Lagarde holds press conference following the rate decision, Thursday
- US initial jobless claims, retail sales, empire manufacturing, business inventories, industrial production, Thursday
- Bank of Japan rate decision, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 11:15 a.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 0.6%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.4%
- The euro rose 0.5% to $1.0806
- The British pound rose 0.8% to $1.2613
- The Japanese yen fell 0.3% to 139.95 per dollar
Cryptocurrencies
- Bitcoin was little changed at $25,906.33
- Ether fell 0.1% to $1,736.96
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.78%
- Germany’s 10-year yield advanced three basis points to 2.42%
- Britain’s 10-year yield advanced nine basis points to 4.43%
Commodities
- West Texas Intermediate crude rose 3.6% to $69.53 a barrel
- Gold futures fell 0.3% to $1,964 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani, Julien Ponthus, Peyton Forte, Allegra Catelli, Blaise Robinson, Emily Graffeo, Brett Miller, Tassia Sipahutar, John Viljoen, Isabelle Lee and Cecile Gutscher.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.